Aurelia Butler

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China has called on “all relevant parties” to “ensure the safety of navigation in the Red Sea” as analysts warned that Houthi rebels’ attacks on commercial ships threaten the world’s second-largest economy.Beijing’s call for action to protect the global trade route came as the US is believed to have reached out to China over whether it can apply pressure on Iran, which backs the Yemen-based Houthis. China has warm relations with Tehran.But China’s Ministry of Commerce stopped short of signalling diplomatic or military assistance to defuse the crisis in the waterway.“The Red Sea is an important international trade route,” a ministry spokesperson said on Thursday, adding that China would “strengthen co-ordination with relevant departments, closely follow the developments and provide timely support and assistance to foreign trade enterprises”.The US and the UK have launched a series of strikes over the past week against the Houthis, who have vowed to continue their campaign in response to Israel’s invasion of Gaza.Beijing, which has invested heavily in building close ties in the Middle East and backs the Palestinian cause in the Gaza conflict, has publicly been neutral on the Houthi attacks.But Iran’s support of the Houthis has presented a test for China’s relations in the region, analysts said. China imports about half of its crude oil from Iran and other countries in the Middle East, and much of its trade with the EU, its second-biggest trading partner, also passes through the Red Sea.Beijing last year brokered a rapprochement between Iran and Saudi Arabia, a feat Chinese officials applauded as evidence of the country’s successful diplomacy. Yin Gang, a Chinese Middle East affairs expert, said that although Houthi forces had not attacked Chinese merchant vessels, the disruption had raised shipping costs and caused “huge losses” for Chinese companies.“The Red Sea shipping route is of great importance to Chinese merchant ships,” Yin said. “Although shipments from countries like China might be safe, the freight costs have increased . . . it’s a very bad thing for China.”The Shanghai Containerized Freight index last week rose to the highest level since September 2022, reflecting the increased costs of rerouting vessels around the Cape of Good Hope in Africa.China’s largest shipping company, state-owned Cosco, has been forced to reroute cargo away from the region, said Stefan Angrick, associate director and senior economist at Moody’s Analytics, raising the costs for exporters and causing delays. “At a time when the economy at home isn’t looking like it’s in great shape, I think it’s fair to say that is an unwelcome headwind,” Angrick said. He added that European high-tech suppliers to Asia would also be disrupted, raising risks for supply chains that were finally recovering after the coronavirus pandemic and Russia’s invasion of Ukraine.Analysts warned that China would probably not intervene directly through military operations or by putting pressure on Iran, and preferred to make general statements about the importance of international maritime channels.“Iran backs the Houthis, so China won’t deal directly with Iran on this issue,” Yin said.China’s People’s Liberation Army has a naval base in Djibouti, at the mouth of the Red Sea, but analysts said it would run against Beijing’s diplomacy in the region to participate in any military action against the Houthis or back US policy, which it sees as a failure.“Except in matters related directly to sovereignty and UN peacekeeping operations, China has made it clear as a matter of principle it’s going to avoid engaging in military conflict whenever possible,” said Josef Gregory Mahoney, professor of politics and international relations at East China Normal University.Additional reporting by Wenjie Ding in Beijing More

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Every morning a small group of master blenders enters a glass bunker inside cognac house Martell’s complex of 19th-century warehouses to start the daily ritual of tasting, cataloguing and mixing the 300-year-old French company’s heady elixirs.With cognac usually sold as a blend of different vintages, the panel’s job is to create the same taste year after year for each of the Pernod Ricard-owned producer’s lines, mixing hundreds of batches of the grape-based spirit under the watchful eye of the cellar master.“The most important, most decisive tastings are done at the end of the morning from 10am to 11am when we start to feel hungry, so we are much more sensitive to smells and aromas,” said Christian Guerin, one of Martell’s experts. “But the work of learning cognac is one of decades, of tasting and remembering constantly. There is no school for this — you learn in the cellars.”The commitment to constancy stands in contrast to the international ructions filtering into this region of south-west France, where the geographically protected brandy is the dominant industry, boasting sales of almost €4bn ($4.4bn) a year and employing more than 60,000 people directly and indirectly.A sharp drop in exports to the US, cognac’s biggest market, has dented sales for producers, while an anti-dumping investigation launched by China this month amid a wider trade dispute with the EU has created further risks for the industry.The ‘paradis’ cellars of the Bache-Gabrielsen cognac house, the storage room for the oldest batches More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist at German bank LBBW and former chief ratings officer at S&PA debt crisis is ravaging what has been dubbed the “global south”. According to the IMF more than half of all low-income countries in sub-Saharan Africa are already in or at high risk of debt distress. After a long lull during the era of low interest rates, sovereign defaults have picked up again. Having been courted by global investors for over a decade, African frontier market sovereigns are now largely locked out of the market to issue new international bonds. For hard currency bonds, the average yield on the S&P Africa Sovereign Bond Index is running at 13 per cent, from below 9 per cent three years ago.When listening to African politicians, the culprits are quickly identified: rating agencies. A wave of downgrades has hit African sovereigns since the pandemic struck the world economy. Finance ministers are rarely ecstatic when their credit rating is being slashed. Their reflexive reaction around the globe has become a bit of a cliché: the agencies do not appreciate the country’s strengths and anyway suffer from home bias. African officials are no different. Ghana’s outspoken finance minister, Ken Offori-Atta, asked in 2020 in the Financial Times whether “rating agencies [are] beginning to tip our world into the first circle of Dante’s inferno?”. Senegal’s president, Macky Sall, took a similar line when speaking in his role as chair of the African Union, stating that “the perception of risk continues to be higher than actual risk”. The UN has implausibly argued that had the rating agencies applied “objective” ratings, African countries could have saved a staggering $75bn in debt service costs. The African Union wants to set up an African rating agency to right the wrongs.Agencies would contest the bias claim. They argue that they apply a common set of criteria for all sovereigns, from Canada to Cameroon. Still, the agencies’ methodologies leave a lot of room for discretion and opinion, for example when assessing the strength of institutions and predictability of policies. Therefore, frustrated finance ministers in frontier countries could have a point lamenting discrimination. But do they?Let’s recall what the rating agencies’ narrow job description actually is. They exist for the sole purpose to rank debtors by relative risk of default. The rating is a shorthand for the expected probability of a sovereign missing a debt payment. With this in mind, answering the question whether an anti-African ratings bias exists is actually not very hard. In a world of perfect ratings, the probability of default of all B-rated sovereigns, to pick an example, should be the same irrespective of the countries’ geography or culture. Ratings are opinions about likelihood of default. As the future is unknown, the claim that an inherent bias exists in the current rating cannot therefore be objectively confirmed or rejected. Only the future will tell. But we can look into the rear-view mirror and assess the comparability of sovereign ratings. Examining observed default episodes that have occurred in the past, we can compare the ratings that had been assigned prior to the default. If B-rated African sovereigns would have been less likely to default within, say, a five-year period than B-rated sovereigns elsewhere, the agencies would indeed have scored African sovereigns unfairly. If, however, the observed default probabilities are identical, then everyone has been rated equally. Nothing to see here, move along.Digging through the data of S&P Global offers surprising findings. Sub-Saharan African sovereigns rated in the B category between 2010 and 2023 defaulted in 22 per cent of all cases within five years. The respective global number stands at a long-term average of only 16 per cent. Over at Moody’s, the observed default ratios look similar at 30 per cent for sub-Saharan African sovereigns and 15 per cent for its global average.The default data shows that default rates of African sovereigns are higher at each rating level than that of their global peers. Africa’s ratings have been too high, not too low. The actual, objectively-observed bias in sovereign ratings has been in favour of Africa.This is not to belittle the severity of the debt crisis ravaging the continent and the consequent setback in its quest for progress and poverty alleviation.However, the data shows that much of African criticism of credit rating agencies is a red herring. The agencies are convenient scapegoats. African leaders should focus instead on pushing for faster debt restructuring mechanisms. Progress in this area has been at a glacial pace. Each day that goes by without removing the debt overhang intensifies the social and economic crisis in Africa.   More